HM Treasury confirmed an updated approach to cryptoasset financial promotions due to feedback it had received regarding the implementation of the measure for qualifying cryptoassets and potential unintended consequences for industry.
The feedback included the following key points:
- the requirement to be authorised means most crypto firms will not be able to communicate their own promotions, unlike other financial services firms which are typically authorised by virtue of having Part 4A FSMA permissions to carry on regulated activities (most crypto firms are not required to hold such authorisation in respect of their crypto activities under existing regulation); and
- there is evidence of a lack of suitable authorised persons in the market willing and able to approve crypto promotions.
After considering industry feedback and a range of mitigating options, the government has decided to introduce a bespoke exemption from the financial promotion restriction in section 21 of Financial Services and Markets Act 2000 (FSMA) for certain financial promotions relating to qualifying cryptoassets.
This exemption will enable cryptoasset businesses registered with the Financial Conduct Authority (FCA) under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘AML/CTF regulations’), which are not otherwise authorised persons, to communicate their own financial promotions in relation to qualifying cryptoassets (defined for the purposes of the Section 21 exemption). Registered cryptoasset businesses relying on this exemption will not be able to approve financial promotions or to communicate their own financial promotions in relation to other controlled investments.
This exemption will "ensure that a cryptoasset exchange provider or custodian wallet provider registered under Regulation 54(1A) of the AML/CTF regulations will be able to communicate their own promotions in relation to qualifying cryptoassets." This exemption will not apply to "registered cryptoasset exchange providers or custodian wallet providers that are also authorised persons, as these cryptoasset businesses are already able to communicate their own financial promotions without the need for this exemption."
The government intends to confer powers on the FCA to enable it to make rules applying to financial promotions communicated in reliance on this exemption. This will ensure that "unauthorised cryptoasset businesses relying on the exemption are subject to the same financial promotion rules as authorised persons communicating equivalent promotions."
In implementing the bespoke exemption, HM Treasury intends to confer powers on the FCA to enable it to "respond flexibly to breaches of the financial promotion rules by registered cryptoasset businesses relying on the exemption." These powers will be drawn from FSMA and applied in respect of registered cryptoasset businesses, which are not otherwise authorised, (with necessary amendment to ensure they operate appropriately) to ensure that the FCA can regulate the financial promotions of those cryptoasset businesses in a similar way as they regulate other financial promotions in the financial services market.
Registered cryptoasset businesses seeking to use this exemption will not require any further FCA registration or authorisation.
HM Treasury welcomed the FCA’s work to increase its resourcing of assessing cryptoasset businesses for registration under regulation 54(1A) of the AML/CTF regulations and expects that ongoing FCA work to increase capacity will ensure that the registration of new cryptoasset businesses continues to take place in a timely manner. In regulating cryptoasset financial promotions the FCA will have regard to the Regulatory principles under FSMA, including the principle that a burden or restriction should be proportionate to the benefits which are expected to result from the imposition of that burden or restriction.
For a detailed analysis from Hogan Lovells Global Digital Assets and Blockchain Practice, see UK: Bespoke temporary exemption for financial promotions relating to qualifying cryptoassets